Tuesday, June 1, 2010

Spring revival continues

German unemployment decreased by a non-seasonally adjusted 164,800 in May. Officially, 3.242 million Germans are currently unemployed. This is the lowest level since November 2009. In seasonally-adjusted terms, unemployment dropped by 45,000, pushing the seasonally-adjusted unemployment rate to 7.7%, from 7.8% in April. This is the lowest unemployment rate since December 2008 and illustrates the strong Spring revival of the German labour market.

The bogey of mass unemployment has been shooed away. Successful labour market reforms, the government’s famous crisis tool of short-work schemes and companies’ prudence have made the labour market the bright spot of the recession. Even better, the labour market seems to turn much earlier than many had thought. Leading indicators, historical evidence and latest promising recruitment plans all suggest that the current positive trend on the German labour market will continue in the coming months. It should only be a matter of a few months before the unemployment rate returns to its pre-crisis level.

Despite the labour market’s success story, policy complacency would be misplaced. The positive trend of recent months should be used to unwind the labour market crisis measures and to return to active employment growth policies. In this context, the recent decision from the German government to extend the famous short-work schemes once again until March 2012 was the easiest but probably also most dangerous solution. It only postpones but does not solve the exit problem.